Lease Vehicle Tax Deductions You Could Easily Miss

tax deductions on a lease vehicle

I hate to see business owners give away their money. But it happens all the time. Business owners who try to do their taxes on their own miss out on money saving opportunities because they don’t know tax law. An example of this is when you overlook tax deductions on a lease vehicle for business purposes. I’m not saying it’s easy to calculate these deductions, but after all, it IS your money. After we determine how much usage your lease vehicle gets for business purposes and personal purposes, we can determine your deductions. For today, let’s assume you use your lease vehicle 60% for business purposes and 40% for personal purposes.

Generally, you’re can deduct for the following 3 types of expenses:

  1. Advanced payments (down payment)
  2. Lease payments
  3. Operating expenses

1. Your Down Payment

Let’s start with the obvious bad news first. It’s a fact. Down payments on a lease vehicle cannot be a deduction all at once. We must amortize it over the life of the lease term. That stinks because what could be a great deduction opportunity is now small amounts per month. However, let me reveal good news about tax deductions on a lease vehicle. We can also amortize the trade-in value of your previous vehicle. Normally, business owners think they are doing a “like-kind” exchange and forget to mention the value of that trade-in. Oh no-no-no. The IRS considers your trade-in to be a sale from you to your dealer. Therefore, the value of the trade-in is a down payment on the lease. I bet you did think of that as a tax deduction opportunity, did you?

2. Your Lease Payments

Again, first the bad news. Your lease payments are not fully deductible because we must consider the percentage of business purpose usage. If you use it 60% for business purposes, we calculate all your payments for the year and multiply by 60% to get the deductible amount. But, don’t forget the “inclusion amount.” The IRS makes you reduce your lease payment deduction by a yearly “inclusion amount”. It’s a small amount, but in order to do your taxes deductions correctly, leave the calculations to us. Here’s the silver lining to the “inclusion amount” rule: it only applies to luxury passenger vehicles. If you own a SUV or pickup that is greater than 6000 pounds, you’re exempt from the “inclusion amount.”

3. Your Operating Expenses

Only good news on this one. You can deduct operating expenses, including tires, maintenance and repairs, gas, oil changes, insurance, gap insurance, parking fees, and tolls. Remember, we calculate all the fees at the end of the year and multiply it by your percentage of business usage. It’s the operating expense tax deductions on a lease vehicle.

Get Your Full Tax Deductions On A Lease Vehicle.

Call Paragon TodayBusiness owners who do their own taxes often miss valuable opportunities to take tax deductions on a lease vehicle. As a result, they are giving away their precious dollar unnecessarily. At Paragon, we want to be your bookkeeping partner and delight with you in tax savings. We partner with local small businesses in Woodstock, Canton, Marietta, Roswell, and Alpharetta. Contact us today and take the guess work out of your tax deductions!